Planning for your future without relying on Social Security - Part Two - Late to the Game
Last month I wrote about the basics of getting started with planning for your future sans Social Security if you’re getting started at a young age. Now I’m going to touch on a couple additional issues that are applicable if you’re getting into the game a bit later in life, primarily targeted at individuals who are between thirty and fifty years old and are just “waking up” to their financial future and their need to plan for it.
Depending on what end of that thirty to fifty year old age range you’re at, this can be a very stressful revelation, and as such, if you are experiencing a great deal of financial stress without an appropriate plan for your future, I highly suggest seeing a professional financial advisor and getting their help to lay out a plan appropriate for where you are in life and what your plans are for the future. With that said, all of the initial steps I wrote about in my first post on this topic still apply, some just need further elaboration if you’re getting started later in life.
Debt becomes a more important factor.
Yes, the older you are, the closer to retirement you get, and as such, debt becomes a more important factor in your financial plan. Often when people don’t save until they are over thirty, then they also have bad habits with debt. If you don’t, more power to you and you can breathe easy as you likely won’t have any issue accruing enough wealth to be able to retire at a reasonable age if you buckle down and start saving now. However, if you are carrying a load of debt, you need to evaluate the difference between your smart debt and not-so-smart debt and work out a repayment plan to follow closely (there are millions of resources covering how to do this, so I won’t bother regurgitating the topic here).
When you retire, you ideally want no debt going into it as the more debt you have, the more you have to have saved to be able to cover the payments; sort of counterproductive towards saving for your retirement in the first place. Younger individuals have the luxury of time to repay their debt and then start on their retirement savings, you don’t. To fully maximize long term growth and benefits of your available retirement programs (Whether than be an IRA, 401k, etc), you’re going to need to be putting something into them consistently if you’re in this age range, you can’t afford not to. Of course more should be going towards paying off your debt still than towards your retirement, but you at least need to be putting in enough to cover any employer matches on a 401k/IRA program and/or to maximize your personal IRA contribution for the year (which is currently $5,000/year for individuals 49 and below for a Roth IRA).
Basically, be very aware of your debt, get it under control and once you have it under control, start diverting that money you were putting towards your debts towards your retirement instead.
Invest with long term taxability and stability in mind
By this point in your life, you should have a good idea what your tax bracket currently is and what it should be when you are planning on retiring. That means that you need to start making decisions based on that data. This is where issues such as a traditional vs. Roth IRA/401k are important (whether you’re going to pay taxes on your principle at your current tax rate or on your dividends when you decide to withdraw them at your tax rate at that point). A larger percentage of your overall investment portfolio should also start to focus on stable, guaranteed yields rather than higher risk growth oriented stocks/funds; basically you need to start looking more towards bonds, etc at this point. Attempting to play ‘catch up’ by making high risk investments with what money you do have is not a good idea.
Family matters
If you are over thirty years old, have any relatives or loved ones you care about and don’t have an up-to-date will or testament, you need to get off your ass and create one or have one created for you by an attorney. Make sure to entrust a copy of it with a trusted friend/family member, or, ever better, your lawyer. It will relieve a great deal of stress and confusion that could otherwise occur during an already very stressful time for your family.
Don’t give up
As I said earlier, just getting started with your “financial life” when you’re already over thirty, and even more so when you’re getting towards fifty, can be an extremely stressful situation. If you’re determined, educate yourself, and stick to your guns it is most likely that you will be capable of putting together a plan that will still have you retiring by the time you’re fifty five to sixty years old. Depending on your debt load, you may have to work until you’re a bit older or take on a second job in the meantime, but in the end it’ll pay off in financial freedom during your retirement years, allowing you to truly enjoy them. Don’t let yourself be discouraged by the path in front of you, just take one step at a time and do what needs to be done and you’ll find that things will start falling into place more and more often as you proceed towards your goal.
The third, and final part of this series of posts will be discussing financial planning for individuals who are only getting started when they are fifty years or older. It’s going to be a bit more involved and in my opinion the hardest challenge to tackle, but where there’s a will there’s a way, and one can realistically save enough for their retirement in under ten years if they are dedicated to doing so and are over fifty (some fun new options come into play). Until then, I wish everyone the best of luck on their financial path.
Tags: building wealth, managing finances, planning for your future, social security
June 3rd, 2008 at 12:52 am
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